Thank you for that very detailed explanation. To clarify, I am foreign resident American. I have regular unearned income and this year I have an IRA distribution. I guess all of this is covered by the tax treaty, but specifically, the IRA distribution is supposed to be taxed first in my resident country, and then in the US, but I'm entitled to a tax credit in the US to avoid double taxation. Thus, ideally I need to find a way to put the foreign tax paid on this distribution on the 1116 in full without it being reduced/limited by the foreign source income ratio. Doesn't seem possible on the form unless I'm missing something. If this is not possible, I assume that instead I must run the IRA distribution through the form, subject it to the foreign source ratio and then take the allowable credit. I believe if this is the way I do it, then I can "re-source" the IRA distribution as foreign sourced even though it was from an American-based IRA, thereby increasing the ratio and the allowable credit. I did a simulation and I would recover most of the incremental foreign tax on the IRA dist'n, but not all of it, which leads me to believe that perhaps I did something wrong since in theory I'm entitled to a full credit for tax on the dist'n. If done like this, I plan to put the unearned income on one form 1116 ("passive based") and then the IRA distribution on another (re-sourced per treaty to foreign as above). This sounds right to you? Also, you are saying that in any case, I do not need to file a Form 8833, correct? Many thanks for your awesome help.
